What Can Be Done?

Overreliance on the property tax coupled with inadequate state aid, particularly education aid, place Connecticut towns and cities in a severe fiscal bind. Municipalities are forced to raise already onerous property tax rates, reduce non-educations services, and divert scarce resources to pay for escalating regular and special-education costs. Connecticut is one of the few states locked into such an antiquated, local-revenue system.

There are approaches that need to be considered as we seek a way out of the property tax chokehold.

1. Education Finance Reform:

o Increase the ECS foundation level to reflect the real cost of adequately educating students tied to a statutorily identified cost index.

o Continue the commitment to fully fund the ECS grant.

o Eliminate the Minimum Budget requirement (MBR) mandate.

o In lieu of a complete State takeover of special-education delivery, decrease the Excess Cost grant threshold to at most 2.5 times the district’s average per-pupil expenditure and fully fund the grant.

o Pay 100 percent of marginal costs for severe-needs students, statewide without equalization. o Shift the burden of proof to the petitioner in special-education due process hearings.

o Make modest reforms to the Teachers’ Retirement System (TRS).

2. Fully fund PILOT: The State must fully fund PILOT to provide reimbursement to municipalities for revenue lost due to state-mandated property tax exemptions. In absence of full funding of PILOT, the State should consider eliminating some property tax exemptions.

3. Revenue Diversification: Municipalities should be allowed to levy certain types of local-option taxes in order to reduce property taxes. For example, locally levied sales taxes or hotel taxes can be considered in municipalities where they make sense.

4. Allow Regional Tax Levies: Councils of government (COGs) could levy taxes that would fit best with their particular region. COGs comprise chief elected officials, people who are accountable to the voters of their communities for their decisions.

For example, a local-option sales tax might drive retail activity to the suburbs and away from cities, but a regional sales tax would not have the same effect. If a retailer wants access to the market of a given region, the tax would apply no matter where it locates.

Granting local-option taxing authority to COGs would diversify the municipal revenue base. It would combine the advantages of local-revenue enhancement while tailoring it to regional needs and avoiding negative competition between urban centers and suburbs. It would also be a major step towards increasing regional cooperation and thus improve overall governmental efficiency.